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Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Residential Status and Tax Incidence of Companies

Updated 11 October 2026 · Fact-checked

Under section 6(10) of the Income-tax Act, 2025, a company is resident in India in a tax year if it is an Indian company or its place of effective management (POEM) is in India. Otherwise it is non-resident. Resident companies are taxed on global income; non-resident companies only on India-linked income.

Understand Residential Status and Tax Incidence of Companies

Residential status decides how much of a company's income India can tax. It is fixed for each tax year separately. A company can be resident in one year and non-resident in the next.

A company has only two states: resident or non-resident. The 'not ordinarily resident' category applies to individuals and HUFs under section 6(13). It does not apply to companies.

Section 6(10) gives two tests. First, an Indian company is always resident. Second, a foreign company is resident if its place of effective management is in India in that tax year. Either test is enough.

POEM means the place where key management and commercial decisions needed to run the business of the company as a whole are, in substance, made. Focus on where decisions are really made, not on where the board meets on paper or where the company is registered. Look at who takes the big decisions, and where.

The tax incidence follows. A resident company is taxed on income received or deemed received in India, income accruing or arising in India, and income accruing or arising outside India. A non-resident company is taxed only on income received or deemed received in India, and income accruing or arising, or deemed to accrue or arise, in India. Income earned and received abroad by a non-resident company stays outside the Indian tax net.

Key rules to remember

Residence of a company
Resident = Indian company OR POEM in India in that tax year
Section 6(10)(a). Satisfying either limb makes the company resident. Otherwise it is non-resident.
Place of effective management
POEM = place where key management and commercial decisions for the business as a whole are, in substance, made
Section 6(10)(b). The test is substance, not form.
Scope of total income: resident company
Income received or deemed received in India + income accruing or arising (or deemed so) in India + income accruing or arising outside India
Global income is taxable.
Scope of total income: non-resident company
Income received or deemed received in India + income accruing or arising (or deemed so) in India
Foreign income not received in India is outside scope.
Spread of residence across sources
Resident for one source of income = resident for all sources in that tax year
Section 6(12). A person cannot be resident for some income and non-resident for other income.
Not ordinarily resident
Section 6(13) covers individuals and HUFs only
A company is never NOR.

How to solve Residential Status and Tax Incidence of Companies questions

Use this method for any question on a company's residence and the taxable scope of its income.

  1. 1Identify the tax year. Residence is decided year by year.
  2. 2Check whether the company is an Indian company. If yes, it is resident. Stop the residence test.
  3. 3If it is a foreign company, find where key management and commercial decisions are in substance made. Use facts such as where the directors who decide strategy sit and where major contracts and finance decisions are taken.
  4. 4Ignore weak facts. Place of incorporation, registered office, or a formal board meeting abroad do not decide POEM alone.
  5. 5State the conclusion: resident or non-resident, citing section 6(10).
  6. 6List each income item and classify it by where it was received and where it accrued or arose.
  7. 7Apply the scope rule: all items for a resident company; only India-received or India-sourced items for a non-resident company.
  8. 8Total the taxable income and state clearly the amount excluded.

Quickest way: Two-question residence check

When to use it: Use when time is short and the question asks only for residential status or taxable amount.

  1. Ask: is it an Indian company? If yes, write resident under section 6(10)(a)(i).
  2. If no, ask: where are key decisions in substance made? India means resident; outside India means non-resident.
  3. Tag every income item as India-received, India-sourced or foreign-only.
  4. Resident: add all items. Non-resident: add only India-received and India-sourced items.
  5. Write one line of reasoning per item so marks for analysis are secured.

Common mistakes in Residential Status and Tax Incidence of Companies

  • Treating a foreign company as non-resident because it is incorporated abroad.

    Students confuse place of incorporation with residence.

    Fix: Always run the POEM test for a foreign company. Incorporation abroad does not settle it.

  • Applying the 182-day or 60-day tests to a company.

    These individual tests sit in the same section and are memorised first.

    Fix: Day-count tests in section 6(2) are for individuals. Companies use section 6(10).

  • Calling a company 'not ordinarily resident'.

    Students carry the individual and HUF categories over to all persons.

    Fix: Section 6(13) covers individuals and HUFs only. A company is resident or non-resident.

  • Deciding POEM by where the board meeting is held on paper.

    Students read 'effective management' as 'formal meetings'.

    Fix: The statute says decisions made 'in substance'. Look at who really decides and where.

  • Taxing a non-resident company on all its foreign income.

    Scope rules for resident and non-resident companies get mixed up.

    Fix: A non-resident company is taxed only on India-received and India-sourced income.

  • Assessing residence once and using it for all years.

    Students treat residence as a permanent status.

    Fix: Test each tax year separately, as section 6(10) speaks of 'that tax year'.

Worked examples

Example 1

Zephyr Holdings Ltd is incorporated in Singapore. In the tax year, its managing director and the directors who take all key strategic and financial decisions work from Mumbai, and these decisions are in substance made there. Determine its residential status and say how its Singapore-sourced income not received in India is treated.

Show the solution
  1. Zephyr is not an Indian company, so section 6(10)(a)(i) does not apply.
  2. Test section 6(10)(a)(ii): the key management and commercial decisions for the business as a whole are in substance made in Mumbai.
  3. Hence its place of effective management is in India in that tax year.
  4. So Zephyr is resident in India for the tax year.
  5. A resident company is taxed on income accruing or arising outside India as well.
  6. Therefore the Singapore-sourced income is taxable in India even though it is not received in India.

Answer: Zephyr Holdings Ltd is resident in India under section 6(10)(a)(ii), and its Singapore-sourced income is taxable in India.

Example 2

Kaveri Exports Ltd is a foreign company whose POEM is outside India in the tax year. It earned ₹40,00,000 from Indian sales that accrued in India, ₹15,00,000 from services abroad received abroad, and ₹5,00,000 of foreign income received in India. Compute the income within the scope of Indian tax.

Show the solution
  1. Kaveri is a foreign company with POEM outside India, so it is non-resident.
  2. A non-resident company is taxed on income received in India and income accruing or arising in India.
  3. Indian sales of ₹40,00,000 accrued in India, so they are included.
  4. Services abroad of ₹15,00,000 were earned and received abroad, so they are excluded.
  5. Foreign income of ₹5,00,000 received in India is included because the receipt is in India.
  6. Total in scope = ₹40,00,000 + ₹5,00,000 = ₹45,00,000.

Answer: Kaveri Exports Ltd is non-resident, and ₹45,00,000 falls within the scope of Indian tax; ₹15,00,000 is outside it.

Exam tips

  • Answer in the order of provision, facts, conclusion. Quote section 6(10) first, then apply it to the facts.
  • In POEM questions, pick out facts showing where decisions are made in substance and say why other facts, such as incorporation, do not decide the point.
  • Always state both limbs of section 6(10): Indian company, or POEM in India.
  • For scope questions, show a short table-like list in bullets of each income item with its classification, then the total.
  • State clearly that a company has no NOR status, if the question hints at it.

Practice questions from Corporate Tax Planning

Residential Status and Tax Incidence of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Residential Status and Tax Incidence of Companies: frequently asked questions

How is the residential status of a company decided under the Income-tax Act, 2025?

Section 6(10) makes a company resident if it is an Indian company or its place of effective management is in India in that tax year. If neither applies, it is non-resident.

What is place of effective management?

It is the place where key management and commercial decisions necessary for the conduct of the business of the company as a whole are, in substance, made. The test looks at where decisions are really taken.

Can a company be not ordinarily resident?

No. The not ordinarily resident category in section 6(13) applies to individuals and HUFs, not companies. A company is either resident or non-resident.

What income is taxed for a non-resident company?

Income received or deemed received in India, and income accruing or arising, or deemed to accrue or arise, in India. Foreign income not received in India is not taxed.